Senate File 2302
SENATE FILE
BY COMMITTEE ON WAYS AND MEANS
(SUCCESSOR TO SSB 3171)
Passed Senate, Date Passed House, Date
Vote: Ayes Nays Vote: Ayes Nays
Approved
A BILL FOR
1 An Act relating to tax credits for investments in certain
2 qualifying businesses and community=based seed capital funds
3 and providing for retroactive applicability.
4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
5 TLSB 6927SV 80
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PAG LIN
1 1 Section 1. Section 15E.42, subsection 3, Code Supplement
1 2 2003, is amended to read as follows:
1 3 3. "Investor" means an individual a person making a cash
1 4 investment in a qualifying business or an individual taxed on
1 5 income from a revocable trust's cash investment in a
1 6 qualifying business or a person making a cash investment in a
1 7 community=based seed capital fund. "Investor" does not
1 8 include a person which is a current or previous that holds at
1 9 least a seventy percent ownership interest as an owner,
1 10 member, or shareholder in a qualifying business.
1 11 Sec. 2. Section 15E.43, subsection 1, paragraphs a and b,
1 12 Code Supplement 2003, are amended to read as follows:
1 13 a. For tax years beginning on or after January 1, 2002, a
1 14 tax credit shall be allowed against the taxes imposed in
1 15 chapter 422, division II, for a portion of an individual
1 16 taxpayer's equity investment, as provided in subsection 2, in
1 17 a qualifying business. An individual shall not claim a tax
1 18 credit under this paragraph of a partnership, limited
1 19 liability company, S corporation, estate, or trust electing to
1 20 have income taxed directly to the individual. However, an
1 21 individual receiving income from a revocable trust's
1 22 investment in a qualified business may claim a tax credit
1 23 under this paragraph against the taxes imposed in chapter 422,
1 24 division II, for a portion of the revocable trust's equity
1 25 investment, as provided in subsection 2, in a qualified
1 26 business.
1 27 b. For tax years beginning on or after January 1, 2002, a
1 28 tax credit shall be allowed against the taxes imposed in
1 29 chapter 422, divisions II, III, and V, and in chapter 432, and
1 30 against the moneys and credits tax imposed in section 533.24,
1 31 for a portion of a taxpayer's equity investment, as provided
1 32 in subsection 2, in a qualifying business or a community=based
1 33 seed capital fund. An individual may claim a tax credit under
1 34 this paragraph of a partnership, limited liability company, S
1 35 corporation, estate, or trust electing to have income taxed
2 1 directly to the individual. The amount claimed by the
2 2 individual shall be based upon the pro rata share of the
2 3 individual's earnings from the partnership, limited liability
2 4 company, S corporation, estate, or trust.
2 5 Sec. 3. Section 15E.44, subsection 4, Code Supplement
2 6 2003, is amended to read as follows:
2 7 4. After verifying the eligibility of a qualifying
2 8 business, the board shall issue a tax credit certificate to be
2 9 attached to the equity investor's tax return. The tax credit
2 10 certificate shall contain the taxpayer's name, address, tax
2 11 identification number, the amount of credit, the name of the
2 12 qualifying business, and other information required by the
2 13 department of revenue. The tax credit certificate, unless
2 14 rescinded by the board, shall be accepted by the department of
2 15 revenue as payment for taxes imposed pursuant to chapter 422,
2 16 division divisions II, III, and V, and in chapter 432, and for
2 17 the moneys and credits tax imposed in section 533.24, subject
2 18 to any conditions or restrictions placed by the board upon the
2 19 face of the tax credit certificate and subject to the
2 20 limitations of section 15E.43.
2 21 Sec. 4. Section 15E.45, subsection 2, paragraphs b and c,
2 22 Code Supplement 2003, are amended to read as follows:
2 23 b. The fund has, on or after January 1, 2002, a total of
2 24 both capital commitments from investors and investments in
2 25 qualifying businesses of at least five one hundred twenty=five
2 26 thousand dollars, but not more than three million dollars.
2 27 c. The fund has no fewer than ten five investors who are
2 28 not affiliates, with no single investor and affiliates of that
2 29 investor together owning a total of more than twenty=five
2 30 percent of the ownership interests outstanding in the fund.
2 31 Sec. 5. Section 15E.45, subsection 6, Code Supplement
2 32 2003, is amended to read a follows:
2 33 6. In the event that a community=based seed capital fund
2 34 fails to meet or maintain any requirement set forth in this
2 35 section, or in the event that the community=based seed capital
3 1 fund has not invested at least thirty=three percent of its
3 2 invested capital in no fewer than two one or more separate
3 3 qualifying businesses, measured at the end of the thirty=sixth
3 4 month after commencing the fund's investing activities, the
3 5 board shall rescind any tax credit certificates issued to
3 6 limited partners or members and shall notify the department of
3 7 revenue that it has done so, and the tax credit certificates
3 8 shall be null and void. However, a community=based seed
3 9 capital fund may apply to the board for a one=year waiver of
3 10 the requirements of this subsection.
3 11 Sec. 6. Section 15E.51, subsection 4, Code Supplement
3 12 2003, is amended to read as follows:
3 13 4. A taxpayer shall not claim a tax credit under this
3 14 section if the taxpayer is a venture capital investment fund
3 15 allocation manager for the Iowa fund of funds created in
3 16 section 15E.65 or an investor that receives a tax credit for
3 17 the same investment in a qualifying business as described in
3 18 section 15E.44 or in a community=based seed capital fund as
3 19 described in section 15E.45.
3 20 Sec. 7. APPLICABILITY DATE. This Act applies
3 21 retroactively to January 1, 2004, for tax years beginning on
3 22 or after that date.
3 23 EXPLANATION
3 24 This bill relates to tax credits for investments in certain
3 25 qualifying businesses and community=based seed capital funds.
3 26 The bill amends the definition of "investor" to provide
3 27 that an investor is a person making a cash investment in a
3 28 qualifying business or in a community=based seed capital fund.
3 29 The bill also amends the exclusion to the definition of
3 30 "investor" to provide that the term "investor" does not
3 31 include a person that holds at least a 70 percent ownership
3 32 interest as an owner, member, or shareholder in a qualifying
3 33 business.
3 34 Currently, a tax credit is allowed against personal income
3 35 tax liability equal to a portion of an individual taxpayer's
4 1 equity investment in a qualifying business. The bill provides
4 2 that in addition to personal income tax liability, the tax
4 3 credit may be allowed against corporate income tax, the
4 4 franchise tax for financial institutions, the insurance
4 5 premium tax, and the moneys and credits tax for credit unions
4 6 for a portion of a taxpayer's equity investment in a
4 7 qualifying business. The bill makes conforming amendments.
4 8 The bill amends the criteria for community=based seed
4 9 capital funds. The bill provides that a fund must have no
4 10 fewer than five investors who are not affiliates. Current law
4 11 requires no fewer than 10 investors who are not affiliates.
4 12 The bill reduces the minimum required capital commitment from
4 13 investors and investments in qualifying businesses from
4 14 $500,000 to $125,000.
4 15 The bill amends a requirement that tax certificates shall
4 16 be rescinded and nullified by the Iowa capital investment
4 17 board if a community=based seed capital fund has not invested
4 18 at least 33 percent of its invested capital in no fewer than
4 19 two separate qualifying businesses, measured at the end of the
4 20 36th month after commencing the fund's investing activities.
4 21 The bill changes the two separate qualifying businesses
4 22 criteria to one or more separate qualifying businesses.
4 23 The bill applies retroactively to January 1, 2004, for tax
4 24 years beginning on or after that date.
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